Inflation, weak demand undermine production capacity

Although latest inflation data suggest a slower inflation pace at the end of 2022, the effect of weak purchasing power and demand will continue to linger and undermine the capacity of the nation’s manufacturing sector.

Indeed, the Lagos Chamber of Commerce and Industry (LCCI), noted that the manufacturing sector is expected to suffer from weakened consumer demand, high energy cost, policy uncertainty and harsh regulatory environment except the government takes targeted financing support to critical productive infrastructure in the country.

It also predicted that more headwinds of forex scarcity, market volatility, inflation spikes, debt burden servicing, logistics hurdles and Infrastructural deficit would persist in 2023.

Indeed, Nigeria’s headline inflation slowed mildly to 21.34 per cent, suggesting a peak could be on the horizon, even though analysts believe market realities reflect otherwise.

December Consumer Price Index (CPI) reading shows the slight improvement comes from 0.4 percentage point ease in the troubling food basket. According to the data released by the National Bureau of Statistics (NBS), on Monday, year-on-year (y/y) food inflation climbed down from 24.13 per cent recorded in November to 23.75 per cent at the end of the year. But the month-on-month (m/m) change remains elevated at 1.89 per cent – 0.49 percentage points higher than the November figure.

The director general of LCCI, Dr. Chinyere Almona made the forecast in the chamber’s statement on the economy 2023, where she hinted that the manufacturing sector suffered from headwinds, such as scarcity of forex for import of inputs, weakened consumer demand due to weak purchasing power, high energy cost, among others.

She reiterated that, with these factors persisting into 2023, the chamber is of the view that the sector may likely record a growth away from the negative growth of -1.9 per cent as at Q3 of 2022.

While explaining that with the lowering of imports due to forex scarcity, local manufacturing could rev up in growth to meet the growing unmet local demand for hitherto imported finished products.

This, she said, could come to reality if the issues of rising inflation, high energy cost, high interest rates and logistics challenges owing to insecurity in most parts of the country are addressed.

On the domestic economy, Almona noted that, the base factors that might continue to drive the major economic indicators are: Inflation rate, tight monetary policies, unstable currency, foreign exchange scarcity, debt burden, currency management, food supply disruptions, exchange rate volatility and election spending.

In 2023, she said, government’s intervention through targeted financing support to the agriculture sector can boost production, create jobs and lower the spiking food inflation that has been responsible mainly for the rising headline inflation all through 2022.

On the African Continental Free Trade Agreement (AfCFTA), which provides huge opportunity to explore the African markets with Nigeria’s agricultural products, the chamber urged the federal government to scale up plans of establishing special economic zones where agro-processing activities are supported to produce finished food products for the nation’s markets and for export.

Almona further affirmed the need for the Federal Government to sustain its targeted interventions in selected critical sectors like; agriculture, manufacturing, tackling insecurity and free more money from subsidy payments.

“With some of these challenges resolved, we expect to see a higher growth rate at above three per cent higher than the less than average two per cent recorded in 2022. We reiterate our call earlier that governments at all levels should invest more on prevention of climate change induced natural disasters like flooding.

“It is very imperative that we need sound monitoring and evaluation over the budget allocations to capital projects and defence spendings to respectively tackle infrastructural deficit and the fight against insurgency,” she said.